Fourth Circuit overrules Goodwin, affirms $2.7M arbitration award

RICHMOND, Va. – A federal appeals court has upheld a more than $2.7 million arbitration award against Detherage Coal Sales.

The U.S. Court of Appeals for the Fourth Circuit on March 21 to reverse a decision by U.S. District Judge Joseph Goodwin, of the Southern District of West Virginia. The case involved an arbitration award given to Logan & Kanawha Coal Co. over a broken coal supply contract.

Judge Albert Diaz wrote that DCS’s assertion that a judicial determination of arbitrability is needed before arbitration can take place was incorrect.

“Here, despite having had the right to seek an injunction and request a prior judicial determination of arbitrability, DCS chose not to take that step,” Diaz wrote.

“Instead, it submitted the issue to the arbitration panel, resolved to challenge a potentially adverse arbitrability determination collaterally in court, and failed to advance any arguments on the merits of the contract dispute.

“(H)aving affirmed the panel’s arbitrability determination, we see no reason not to confirm its award. Indeed, to rule otherwise would give DCS a second and undeserved bite at the arbitration apple.”

The origin of the dispute began on March 9, 2010, when L&K faxed a purchase order draft to Bill Detherage, the sole member and operator of DCS, proposing to buy 10,000 tons per month of Alma Seam Coal from DCS over a six-month span.

The two-page fax stated that following pages were a part of the contract, but no following pages were attached. DCS changed the 10,000 tons figure to 7,000, signed the order and faxed it back.

L&K returned the signed purchase order a week later, writing “we have a deal” on it. DCS never informed L&K that it had not received the terms and conditions on the “following pages” and made no inquiry about them.

In April 2010, no coal was delivered by DCS, which told L&K that it was having production problems. However, L&K discovered coal was being mined and shipped, but it was going to another customer.

In May 2010, L&K demanded an assurance of performance, including in its letter a copy of the contract. The contract’s terms and conditions contained an arbitration clause and were standard for L&K, which had done business with DCS in the past.

DCS said it had 30 days to address the demand, but it did not object to the applicability of the terms and conditions, the opinion said. DCS subsequently delivered only a small fraction of the promised coal, it added.

On Dec. 21, 2010, L&K filed a demand for arbitration with the American Arbitration Association.

AAA held a hearing to address whether the dispute was arbitrable, whether DCS had breached the contract and whether L&K suffered damages. DCS filed a motion to dismiss, arguing it had never agreed to the arbitration.

The panel found for L&K in the amount of $2,724,719.50, plus reasonable attorneys fees. The company filed a motion to enforce the award in federal court in 2011.

“An arbitration award must be confirmed when the parties provided in the arbitration agreement that a judgment will be entered on the arbitration award,” wrote L&K’s attorney, Rodney A. Smith of Bailey & Glasser in Charleston.

“There are no grounds for modifying, correcting or vacating the award in this case, and the arbitration panel’s decision and award are correct.”

DCS’s motion to vacate the award argued the arbitration clause wasn’t attached to the original contract it signed, and the question of whether the two companies had an arbitration agreement wasn’t for the arbitrators to decide.

“DCS is not claiming that the purchase order is not a contract, just that it did not agree to arbitration when it signed the purchase order,” wrote DCS’s attorney, Marc C. Bryson of Steptoe & Johnson in Charleston.

“Moreover, it not a fair statement of the law that the reference to the unattached ‘following pages’ incorporated the L&K Standard Terms and Conditions into the contract or imposed on DCS a duty to inquire about the terms of conditions.”

On Jan. 20, 2012, Goodwin sided with DCS and vacated the arbitration award, finding that the arbitration terms were not a part of the contract. He wrote that L&K has two different terms and conditions documents that contain different terms.

“The statement within the purchase order that (L&K) asserts incorporates the arbitration clause does not clearly reference either the general or the standard terms and conditions,” Goodwin wrote.

“Because the statement does not distinguish between Logan’s general and standard terms and conditions, it is not clear which document the statement seeks to incorporate.”

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.